By Joseph N. DiStefano, Inquirer Staff Writer

Cash-strapped Harrisburg's City Council is fighting a threatened state takeover by asking for protection from its creditors under rarely used Chapter 9 of the U.S. bankruptcy code.

"The city is insolvent" because it faces $83 million in bond payments for a troubled trash incinerator, plus a deficit in its operating budget, lawyer Mark Schwartz wrote in the city's petition to the federal bankruptcy court in Harrisburg.

The city's move is an attempt to pressure bond insurers Assured Guaranty Municipal Corp. and AmbacFinancial Group Inc. and other creditors into paying as much as $100 million of the city's $300 million-plus in outstanding debt, after deeply indebted Jefferson County, Alabama, won similar concessions, analyst Matt Fabian told clients of his Connecticut firm, Municipal Market Advisors.

Gov. Corbett's office questioned council's power to file for bankruptcy. "It's in violation of the law," spokeswoman Kelli Roberts told my colleague Angela Couloumbis, citing a provision in the state fiscal code, passed in the summer, that stops distressed cities from seeking Chapter 9.

In a statement, State Sen. Jeffrey Piccola (R., Dauphin), who represents the city and suburbs, also called the move illegal.

But the state's punishment for defiant towns like Harrisburg won't likely block the city from pursuing its case, Alan Schankel, managing director at Janney Capital Markets in Philadelphia, told me.

"The penalty is a loss of state aid. That's not much of a penalty" for a city in bankruptcy, he added.

"State law is clear" in allowing Harrisburg's council to declare bankruptcy and seek its own solution to years of heavy borrowing that had been encouraged by state officials of both parties, Schwartz told me.

Pennsylvania already oversees budgets for Philadelphia, Pittsburgh, Chester, and other cities, and Harrisburg had previously requested the state's fiscal guidance. But a majority on the council rejected the state's proposals for possible sale of city parks and parking areas and staff cuts as painful and insufficient to solve the city's problems.

Instead, city officials suggested measures like a new 1 percent income tax on workers, including commuters. State employees who live in Harrisburg's suburbs - Piccola's constituents - object to such a tax.

City Council late Tuesday approved a bankruptcy resolution that blames Assured, the bond insurer, for having "initiated" both litigation against the city and the effort by the state's elected General Assembly to pass "takeover legislation" that could force asset sales. Assured is "eager" to settle with Harrisburg and "strongly supports" Corbett and the General Assembly, said spokeswoman Ashweeta Durani.

Harrisburg isn't the only Pennsylvania community in trouble for spending more than it brings in. Standard & Poor's has cut the credit rating of nearby Northumberland County two notches, to BBB+, after local officials cut property taxes despite a rising deficit. Lackawanna County, which includes Scranton, suffered a similar cut last month.

"When politicians run for office and say, 'No new taxes,' " but continue to spend, that's what can happen, Schankel told me.

Recognized

The Carnegie Corp., which runs the charities set up by steel mogul Andrew Carnegie, has awarded to Philadelphia's Pew family a Carnegie Medal of Philanthropy, given every two years to charitable donors who "believe in dedicating their private wealth to the public good."

The Pews and Pew Charitable Trusts, which fund cultural organizations and public-policy research, will share the honor with eBay founder Pierre Omidyar, Hutchison Whampoa Ltd. founder Li Kai-shing, and others at ceremonies in New York next week.

Pew Charitable Trusts president Rebecca Rimel told me the public recognition from the high-profile Carnegie award was unprecedented in the 65-year history of the trusts.

Andrew Carnegie and oil magnate Joseph Pew were contemporaries who corresponded in the course of business, but it's not clear they exchanged ideas about the personal responsibilities of the rich, Rimel told me. They shared a Calvinist Presbyterian background common to some of the best-known aggressive businessmen and charitable donors of their era.